HAMP principal cuts going to non-Fannie, Freddie borrowers

September 14, 2012|By Mary Ellen Podmolik | Tribune staff reporter

A recent home buyer in Chicago walks down the steps with his son. (John Gress/Reuters)

Some 77 percent of homeowners nationally who received government-backed mortgage modifications in July -- and did not have a mortgage backed by Fannie Mae or Freddie Mac -- saw their loan balances cut, according to the government's latest report on its loan modification programs.

The actual number who received some sort of loan balance writedown -- 4,778 -- is small compared with the 14,117 homeowners who entered into trial loan modifications in July and another 16,767 homeowners who received permanent loan modifications, according to the Treasury Department report, issued Thursday.

It is likely to remain a fraction of overall activity. The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, announced in July that after months of study, it would not allow principle writedowns on mortgages secured or owned by the two agencies.

Fannie and Freddie guarantee about 60 percent of mortgages so as a result, many struggling homeowners are not eligible for principal reductions. In July, that meant only 6,189 mortgages were eligible for non-Fannie and Freddie modifications under the administration's Home Affordable Modification Program.

Mortgage servicers are required to consider, but not required to offer, a principal reduction for non- Fannie and Freddie loans if the loan-to-value ratio of the mortgage is greater than 115 percent. In February, Treasury announced that it would triple the financial incentives paid to investors who agree to cut the loan balances of eligible underwater borrowers.

The median amount of loan principal forgiven was $63,580, according to Treasury's monthly accounting of the program.

The government also reported that mortgage servicers still needed to make progress to improve their interactions with customers and their program reporting and governance. During the second quarter, OneWest Bank and Select Portfolio Servicing were determined to need minor improvements. Seven servicers – Bank of America, CitiMortgage, GMAC Mortgage, Homeward Residential, JPMorgan Chase Bank, Ocwen Loan Servicing and Wells Fargo Bank - were found to need moderate improvements.